In a report issued Wednesday, Wunderlich analyst Eric Beder reiterated a Buy rating and $11.00 price target on shares of XCel Brands Inc (NASDAQ: XELB), but trimmed his (2015 and 2016) estimates for the company, following the announcement of a material alliance with Hudson's Bay Company.

As per the agreement, Hudson’s Bay will become “the first department store player to DTR with four of XCel's key brands,” the note explained.

While the initial partnership only stipulates that XCel will design and manage the production of four of their brands for the Hudson's Bay and Lord & Taylor chains, and not for Saks and Kaufhof (also owned by Hudson's Bay), opportunities to expand the model still remain.

Furthermore, the partnership allows XCel to pursue other similar opportunities in international markets, as long as they don’t interfere with the ongoing agreement.

The Dark Side Of The Agreement

Beder explained that, “While the loss of other wholesale licenses and ramp up costs will be a drag in 2015 and 2016,” he sees this alliance as “a harbinger of further deals and profitable expansion” and believes his team and him are being vastly conservative in their estimates.

Moreover, the analyst noted, the start-up costs “in terms of personnel to oversee the partnership and the initial marketing and start-up costs” should be highly leverage-able in time.

So, even though Wunderlich is “somewhat frustrated with the near term impacts of new deals,” the analysts believe “the company is setting up to exceed near term expectations with conservative guidance and the ability for material operating leverage as new partnerships occur.” Furthermore, they see the transition away from traditional wholesale and into a DTR model for the department store sector as an attractive platform to drive robust longer-term growth.